SPP: FIRST FINANCIAL SERVICES WORKING GROUP

UNCLAS SECTION 01 OF 03 OTTAWA 003103

SIPDIS

DEPARTMENT FOR EB/IFD, EB/OMA, WHA/EPSC, AND WHA/CAN
TREASURY FOR WILBUR MONROE
STATE PASS FEDERAL RESERVE BANK FOR ANN MISBACK
STATE PAS SEC FOR SHAUNA STEELE
STATE PASS OCC FOR GERALYNN BATISTA
STATE PASS COMMODITIES FUTURES TRADING COMMISSION FOR
WARREN GORLICK
COMMERCE FOR ISRALY ECHEGARAY

E.O. 12958: N/A
TAGS: EFIN ETRD ECON PREL CA MX
SUBJECT: SPP: FIRST FINANCIAL SERVICES WORKING GROUP
MEETING YIELDS DELIVERABLES



1. Introduction and Summary: Treasury DAS for
International Monetary and Financial Policy Mark Sobel led
the U.S. delegation to the first Security and Prosperity
Partnership (SPP) Working Group meeting and the 11th NAFTA
Financial Services Committee meeting near Ottawa on October
4, 2005. The
session was chaired by Gerry Salembier, Director for
Financial Institutions at Finance Canada and the Mexican
delegation was led by Guillermo Zamarripa Escamilla, head of
the Bank and Savings Unit at the Ministry of Finance
(Hacienda). Canada will draft a record of the meeting for
clearance by Mexico and the U.S. in which the report on SPP
issues will be
covered in a format that can be presented as a separate
report to
the leaders, highlighting completion of the first items in
the work plan. There was agreement that the U.S. will host
the 2006 meeting, with details to be confirmed later. End
Introduction and Summary.

NAFTA Chapter 14
--------------


2. The meeting opened with a review of NAFTA Chapter 14
issues, with
most discussion on nominees for the Financial Services
roster. Canada and Mexico have proposed five roster
members each; the US has proposed four and confirmed that we
hope to be able to reveal the fifth
nominee within a few weeks, after Congressional
consultation. There was consensus on exploring the
possibility of flexibility in the length of nominees'
terms. There were no legislative notifications relating to
federal reservations in Section A of the Schedules to Annex
VII.

SPP Work Plan
--------------


3. The morning session was devoted to reviewing progress
on the SPP work plan for the Financial Services Working
Group. Following is a brief and by no means comprehensive
summary of some of the major points raised in the
discussions. (Numbers are keyed to the June 2005 SPP Report
to Leaders.)

-- 1. Further collaboration on training programs for bank,
securities and insurance regulators and supervisors: The
parties will report to Leaders that two items in the work
plan have been completed. These items
comprise an inventory of existing technical assistance
training programs for financial regulators, their value,
and whether there is need for more extensive training
programs. It was agreed that the existing program is
comprehensive and should be continued. The parties also
outlined initiatives to boost financial literacy and
financial education, agreeing that things are on a positive
track and can continue independently of the SPP process.

-- 2. Automatic Clearinghouse Issues: The U.S. and Mexico
reported progress, but agreed more work will be needed before
making the ACH process bi-directional.

-- 3. Tax issues: Negotiations are underway between the
U.S.
and Canada and the working group will evaluate progress at
the end of the year. The Canadian side flagged concerns
about a non-agenda item - the 30% withholding tax on
clients of branches of U.S. insurance companies in Canada.

-- 4. Banking/Tax issues: On tax issues, the FSWG
recognized
that U.S. and Canadian negotiators are working on revision of
the bilateral tax treaty, and it was agreed to update those
elements of the work plan towards the end of this year.
The FSWG will report that an item regarding information
sharing on interest income by Canadian nationals will be
dropped from the work plan as it has progressed as much as
possible.

-- 5. Banking and insurance issues: the Mexican delegation
noted that the sectors are very distinct in Mexico. The
fact that 80% of bank capital is foreign changes the
dynamic. On insurance issues, experts will be meeting
later this month and their findings will be incorporated
into the FSWG's final meeting report.

-- 6. Securities issues: Salembier reminded WG participants
that in Canada regulatory jurisdiction is provincial and
stressed the Federal government's commitment to remedying
that "piece of unfinished business." The Finance minister
met last week with provincial counterparts to discuss
evolution
towards a single national securities regulator. Salembier
noted that Quebec has temporarily exempted the London Stock
Exchange from recognition requirements as a step towards
facilitating exchange access. The Toronto Stock Exchange
(TSX)
continues its strong advocacy for access to U.S. trading
screens. The SEC invited the TSX to meet with the new
chairman to explain their proposal. Salembier, in an
aside, noted that firms would welcome clarification from
the SEC on when contacts in the U.S. trigger the
"solicitation" recognition threshold.

-- 7 With regard to reciprocity/harmonization of insurance
requirements for motor carriers, the GOC side hoped that
"in the spirit of progress" they would see a more
forthright response from the U.S. to get the process
underway. The U.S.
side responded that the Insurance Trilateral Working Group
would follow up on this and other issues in the near
future, and their results could be incorporated into the
report.

-- 8. Annuities: The issues under this category remain
bracketed. The Mexican delegation stressed that reform of
Mexico's social security system is a thorny domestic issue
that will be handled in channels other than the SPP.

-- 9. Supervisory and Regulatory Standards: There was some
discussion of the nature of this item on the work plan, but
agreement that the parties will continue to cooperate in
facilitating application of standards and, where
appropriate, working towards convergence.

-- 10. Financing for Development: The Canadian chair of the
FSWG explained that despite efforts to interpret the scope
of the working group as broadly and comprehensively as
possible, establishing a grant to fund development in
Mexico fell outside his area of jurisdiction and might be
more usefully pursued by another SPP working group. The U.S.
expressed similar views. It was agreed that although this
item is bracketed and is unlikely to progress under
the auspices of the FSWG, it will remain on the work plan
unless or until the Mexican Presidency decides it should be
removed.

NAFTA Financial Services Committee
--------------


4. The meeting continued in the afternoon with updates by
each party on regulatory and legislative developments and
the financial services aspects of other international
agreements. Mexico provided a preview on plans for changes
in bank regulation, covering complementary services
companies, capitalization standards, multiple scope
financial institutions and bank investments. Other plans
include a project on sanctions implementation on financial
institutions, a new securities market law and reform of the
insurance laws.


5. Canada reviewed upcoming legislative initiatives
including the 5-year review of financial sector
legislation, enhancements to the anti-money laundering and
anti-terrorist financing regime and changes in private
defined benefit pension plans.

Update on Fireman's Fund
--------------


6. Mexico provided an update on the status of this NAFTA
Chapter 11 case, and Canada, stressing its neutrality in
matters of fact, provided copies of its submission on the
prudential carve-out.

Visit Canada's Classified Web Site at
http://www.state.sgov.gov/p/wha/ottawa

WILKINS